Profits Continue to Elude Canada's Airlines

ByFred Langan, Special to The Christian Science MonitorJune 14, 1990

TORONTO
— CANADA'S airlines have too many planes, too many employees, and not enough profit. After a consolidation reduced the number of big airlines from three to two last year, there is talk that the industry needs further rationalization. ``There won't be two airlines of equal size in Canada by the year 2000,'' says Ted Shetzen, a Vancouver airlines consultant. ``There should be one big carrier with about 50 percent of the domestic market and a big slice of the international market. Smaller carriers would share the rest.''

Air Canada has about 51 percent of the market and Canadian Airlines about 45 percent. Both are losing money. At least three smaller regional carriers are near bankruptcy. Last month Soundair, which operates a local carrier and a charter airline, was forced into receivership. Thousands of holiday travelers were stranded in Florida and the Caribbean when the airline went under.

Air Canada lost US$11 million in the first quarter of this year and the results would have been worse without the sale of $18 million in assets. ``We had hoped fuel costs would come down faster than they have,'' said Pierre Jeanniot, president of Air Canada. He said 1990 would not be a good year for business in general.

To cut operating costs, Air Canada is getting rid of its entire fleet of 14 Lockheed 1011-100 aircraft. Those planes are used for domestic routes. It is keeping its Lockheed 1011-500, a long-range version used on overseas flights, but will phase out those planes in 1993.

CANADIAN Airlines, which lost $29 million in the first quarter, expects to generate $247 million from the sale of Airbus A310 aircraft it acquired when it took over Wardair last year. It also cut its staff from 19,000 to 17,000 and says it will lay off even more people.

``We are turning the corner on profitability. The second quarter will be profitable,'' said Murray Sigler, executive vice president of the holding company which owns Canadian Airlines. Mr. Sigler also hopes Canadian's performance will improve when it moves to its own terminal in Toronto later this year. Toronto handles 52 percent of all commercial air traffic in the country. Right now Canadian Airlines is stuck in an overcrowded terminal while Air Canada has one of its own.

Although analysts feel there may not be enough room for two ``big'' airlines in Canada, there would be pressure to maintain competition. ``You have to question whether the Canadian public would put up with just one big airline. They've grown used to competition,'' says Brock Stewart of Air Canada.

But analysts agree that Air Canada, which was fully privatized by the federal government last year, is the stronger of the two and is most likely to be the one big Canadian airline by the end of the decade or earlier.